The phrase "voluntary employee contributions" seems a misnomer, which would more accurately get conveyed as "voluntary participant contributions".

I have seen some people note that in a retirement plan, even the person who owns the company counts as an employee, even if that person files a schedule C to his or her 1040 instead of an 1120 or an 1120S.

I imagine some people have tried to equivocate about this by saying "I own the company, therefore not serving as an employee, I can make voluntary contributions while my subordinates cannot".

Can anyone provide me with a citation to an official source which clarifies the above?

Does changing a PY requires IRS approval?

At a recent conference, during one of those off the topic conversations between the panel members, I heard some reference to changing a plan year and then Jim Holland chimed in saying, you will need to obtain an approval from the IRS to change the PY.

Brand new plan with short PY for the first year.

Is one required to pro-rate charges/credits as is the case on plan termination (Rev. Rul 79-237)?

To my thinking, one is calculating annual contributions payable from the valuation date over the working lifetime of the partcipants. So for an EOY val on 12/31 say, one is calculating annual contributions payable from 12/31, and it is irrelevant if the plan is a full or short plan year?

What if the plan year is changed for an exsiting plan?

Are the old Pre-PPA Funding Notices (RPA CL / Assets) required for the 2007 plan year or, since PPA changed the requirements do we have a one year exeption as long as we report the 2007 funded percentage on the 2008 notice.

Does this site apply?

Effective date. This provision generally applies to plan years beginning after December 31, 2007. However, the repeal of the ERISA Sec. 4011 notice to participants of funding status applies to plan years beginning after December 31, 2006 (Act Sec. 501(d)(1) of the Pension Protection Act of 2006). A special transition rule applies to the ERISA Sec. 101(f) requirements to report a plan's funding target attainment percentage or funded percentage. For any plan year beginning before January 1, 2008, this reporting requirement will be treated as met if the plan reports (1) for plan years beginning in 2006, the plan's funded current liability percentage for that plan year, and (2) for plan years beginning in 2007, the funding target attainment percentage or funded percentage determined using methods of estimation provided by the Secretary of the Treasury (Act Sec. 501(d)(2) of the Pension Act).

401(k) PSP, 3% SHNEC, calendar year 2007.

We received a Schedule K-1 for the partners that list Guaranteed payments (line 4) of $50,000 and Self-employment earnings (line 14) of zero. When calculating the partner's NESE, is our starting point $50,000, less contributions for staff, less 1/2 SE tax, etc. or is it zero? If Line 14 was a number greater than zero (e.g., $10,000), what would our starting point be?

Any input on this would be greatly appreciated.

Thanks!!

What is the proper correction method when a plan allows a participant to contribute prior to their actual entry date? If error is discovered in the following plan year, does this change the correction method? Thanks.

Our client had a 403(b) plan with an insurance company which was amended and restated during January 2007 as a 401(k) plan. The plan was not terminated. It’s character simply changed. In connection with the change, the assets were transferred from the insurance company to a local bank to administer the 401(k) plan.

During January 2007, prior to the switch to the bank, the insurance company processed several distributions which had related forfeitures Those FF’s were never transferred to the bank, but instead, were refunded directly to the ER on 1-22-07. The refund check characterized it as a “Refund of contributions-premium refund”. An accompanying cover letter says “This check represents a refund of premiums received by (the insurance company) on 1/18/2007. This money has been returned to you in view of the fact that at the time of your remittance, sufficient credit was available to offset a portion, if not your entire bill.”

In a 1-31-07 fax from the insurance company to the ER, the insurance company wrote, “This was additional forfeiture credit that was available and not taken on the final contribution bill for December.” I suspect the reason was that the insurance company had already pulled the plan off of their online system and the insurance company had to manually enter the final payroll and just overlooked applying the FF suspense account against it. The ER had no knowledge of the FF’s and just paid what the insurance company told them to pay into the plan. The ER did not request a refund of the FF’s. It was initiated solely by the insurance company.

The insurance company’s product was a group annuity insurance contract. My concern is that the FF suspense account should have remained in the trust and been wired along with the other trust funds to the bank. The old plan document called for FF’s to reduce ER contributions, which is fine, but I think paying the FF’s to the plan sponsor may be a prohibited transaction. ERISA section 406(a)(1)(d).

I’ve done a little research and couldn’t find anything exactly on point, but did see Rev. Ruling 71-149 that dealt with terminating plans (which I know we don’t have here) and IRS said there, that the FF’s could not revert to the ER. An argument could be made that this is a mistake of fact due to a mathematical error in the calculation of the final contribution payment. Therefore, they can refund the premium/contribution as they should have given them the credit for the forfeitures.

Your opinions are welcome. Is this a prohibited transaction or a mistake of fact?

For a 401(k) plan that permits non-owners to postpone RMDs beyond the traditional RBD of age 70 1/2, can employees who continue to work make 401(k) elective deferrals? What if the plan forces distributions at the traditional RBD? Can employees who continue to work continue to make contributions? I would assume not. Cites? Thanks

A good friend of mine recently won a judgement against a multi employer retirement plan. The credits, amount and time are not in dispute. The question is weather the benefits in arrears by the plan are subject to interest penalties during the time they were not paid to the plan participant (according to ERISA). Also the lump sum payment will bring him into a tax bracket that would not have normally been applied. ie: if paid annually the tax bracket would have been 15% paid in a lump sum he would be in the 28% or higher bracket. Who is liable for the increased burden?

Since the payments were not paid in a timely manner and interest accrued on them benefitrf the coffers of the plan , would they constitute a prohibited transaction and would an individual fiduciary be liable or would the 20% penalty be applicable and against whom?

Thanks

Vinmeister

Does anyone have any insight on the following question:

Under Section 409A, where a company initially adopts a deferred compensation plan (never having had a plan in the past), may members of the group of employees designated as eligible elect within 30 days of adoption of the plan to defer portions of performance-based incentive bonuses pursuant to Reg 1.409A-2(a)(7), or would the initial deferral election provision of Reg. 1.409A-2(a)(8) apply, meaning there could be no deferrals if the plan were adopted during the final six months of the performance period?

Thanks in advance!

Back in 2007, a client (20 or so participants) inadvertently mailed the 5500 to the PBGC. When the IRS notified the client that the 5500 hadn't been received, the client realized the clerical error and immediately mailed the 5500 to the EBSA. A few months later, the IRS issued a notice of assessment of late filing penalties of over $15,000.

The client had submitted all filings by certified mail. We provided the IRS copies of the mailing receipts which confirmed the timeliness of the client's actions. Since the client had a history of always filing timing, the IRS forgave all penalties.

5500 filers will likely never have to demonstrate timely filing. But if they do, having the documentation cements their case.

This is all obvious but you may wish to consider adding to your cover letters that the forms be filed, preferably by certified mail. This blog will self-destruct in 2009 when efast filing is required.

Can a new PS-only plan have a 5 year cliff vesting or does PPA require no worse than a 3 year cliff?

Thanks

Say a client has a terminated employee with a 100% vested profit sharing account of $10,000.

The terminated participant is under age 55 and wants to receive a lump sum in cash.

The name of the profit sharing plan is the "ABC Plan".

Let's say that the plan assets are in Schwab retirement accounts.

My understanding of the logistics is as follows:

The ABC plan makes a check to the terminated employee for $8,000.

The ABC plan makes a check to the IRS for $2,000 (for the 20% withholding).

When the former employee prepares his Form 1040 he declares $10,000 of taxable income, $2,000 of taxes paid and an additional tax of $1,000 (10% penalty) owed.

The former employee completes form 1099R and Form 5329.

Any comments on my above understanding?

If the above is correct, then does the employer instruct Schwab to cut the checks and mail them to the employer for delivery to the former employee and the IRS?

What paper work is provided to the IRS? Does it go to the same address that payroll taxes are sent?

What paperwork is sent to the participant? A check for $8,000 and a note stating that $2,000 was withheld to the IRS and that an additional $1,000 penalty tax is owed?

Get the picture? I need some explanation of the mechanics of what should be an elementary task.

Thank you.

Is anyone using or know of an actuary offshore, or bpo providing actuarial services? We are using an actuary in India right now but she is unable to handle all of our DB and CB plans so we need to find another one.

If you would like to email me directly with the info instead of posting it here, you can send it to:

billybong@gmx.com

Thanks for any info you can provide.

Here is the issue: plan #1 is terminating (and forcing distributions), and employees will become participants in plan #2 (and rolling over account balances, including some designated Roth accounts)...here's the problem....plan #2 does not currently have a Roth feature and will not be able to put one in place anytime soon. Almost all of the participants have MAGI of over $100,000 so can't rollover to a Roth IRA until 2010. Can plan #2 simply separately account for the amounts attributable to the designated Roth accounts and accept the rollovers?

Our 401k plan defines eligible Compensation as "salary actually paid" for a plan year. We have a situation where employees were terminated in the middle of a payroll period but were paid for the full payroll period. 401k deferrals were therefore applied to the entire payroll period payment rather than simply the portion of the period prior to termination.

I just became aware of this process. I'm concerned we've been allowing elective deferrals for the portion of the payroll period that occurred after termination. That looks to me essentially like post-termination severance compensation (ie, not for services performed prior to termination) and I read that as not covered by the Plan.

Is this a clear SCP (assuming the amounts involved are nominal since we're talking about deferrals relative to a 1-2 week period at most)? How far back do I have to look to see when this started?

We have a controlled group (company A and company B each have a money purchase pension plan and a profit sharing plan). They do not have the same plan year.

Should test controlled group as a single employer. However, since they do not have the same plan year, I can't permissively aggregate the 4 plans for 410(b) testing so that would mean I have to test company A's plans separately from company B's plans.

1. Is this correct?

The results of the testing: company A's plans failed the ratio percentage test and company B's plans passed.

Company A's plans would be disqualified unless they pass the average benefits test. (Note: there is no one to bring in to pass the test; HCE is the only participant and the remaining employees are union employees).

2. Is this correct?

Treas Reg 1.410(b)-7(3) does not require plans in the average benefit percentage testing group to have the same plan year. Since company A's plans are relying on the ABP test, all plans must be included in the ABP testing group.

3. Is this correct?

I am curious if anyone else has encountered this situation:

Employer offers a self-insured medical reimbursement plan pursuant to 105(h)(6). (This plan is not part of a cafeteria plan.) The terms of the plan are relatively straightforward: Once an employee pays the first $500 toward their health insurance deductible, the employer will pay the next $1000. The employer's goal is to pay the balance of the deductible after the employee pays the first $500, so in this example the deductible is $1500.

The plan operates on a calendar year. The problem I am encountering is this: the health insurance renews on 9/1 at a higher deductible, but the deductible operates on a calendar year. In my example, the employees have a $1500 deductible for 1/1/08 - 8/31/08. Then on 9/1/08 the deductible increases to $2000 meaning the employees have an additional $500 deductible to meet starting 9/1/08 and ending on 12/31/08. On 1/1/09, the $2,000 deductible starts anew.

My problem is how to address this in the context of the plan. The only solution I can think of is to have a series of short plan years whenever the deductible increases.

I don't think changing the plan year to coincide with the renewal period will work because of the fact that the deductible starts over every calendar year.

I have received a suggestion to amend the plan to provide that the employer will pay the balance of the deductible after the first $500 is paid by the employee (the plan currently states that it will pay a specific dollar amount of the deductible).

Does anyone have a suggestion?

I have been unable to find a site to tell a administrator when the SAR is reqired to be sent to a participant. Does anone know where I can put my hands on this quickly?

Thanx!

If there was an error on the TPA's part where a participant's vesting schedule was not applied correctly and there was an overpayment of the distribution to the participant in the amount of $2,500.00 - the TPA is going to cut a check including earnings to the plan's forfeiture account as they cannot obtain the overpayment back. Does this warrant going through a formal submission to the IRS or would this fall within the self correction program? Thank you.